Historical Performance
Mid-caps have outpaced large and small caps over the past 30+ years, and have beaten them in a majority of rolling periods within it. They have generally protected the downside better than small caps going into recessions and bounced back faster than large caps coming out – providing a risk-adjusted return that has been superior to both. A portfolio that included a specific allocation to mid-cap stocks had a better risk/reward relationship than a portfolio without over both short and long time periods.
If an investor has not made a specific allocation to mid-caps, now may be an opportune time to add them.
- A Long Record of Outperformance
- A Consistent Record of Outperformance
- A Better Risk-Reward Relationship
An investment in mid-caps in 1979 would have significantly outpaced large and small caps over the next three decades. (See Exhibit 1) A $10,000 investment in mid-caps would have grown to $588,474 — $238,000+ greater than either large or small caps.
EXHIBIT 1: Growth of a $10,000 Investment in Select Russell Indices Since 1979
Source: Russell Family of Indexes, Fact Set, 12/31/10
Mid-cap stock outperformance has been consistent over time. Over rolling time periods ranging from one to 10 years, mid-caps have outperformed large and small caps well over half the time. In rolling 10-year periods, mid-caps outperformed small caps every single time. (See Exhibit 3 and use our tool to test the claim.) The importance of the 10-year period, where mid-caps have exhibited their highest rate of outperformance, is that it has often captured both recessionary and expansionary periods. The most recent 10-year period includes the recent recession that began in December 2007 and ended in June 2009, the previous recession which lasted from April 2001 through November 2001 and the expansionary period in between.
EXHIBIT 3: Percent of Time Mid-Caps Outperformed Large and Small Caps
Source: Russell Family of Indexes, Fact Set, 12/31/10
For absolute performance of each of these indexes over the periods referenced, utilize the interactive tool.
Though mid-caps have exhibited volatility levels that are more consistent with their small cap peers over recent years due to equity market uncertainty, over longer time periods the standard deviation of mid-caps has been closer to large caps. Over the long-term, higher absolute returns relative to both large cap and small cap stocks and standard deviation that is more aligned with large caps has provided mid-cap investors with a superior risk/reward relationship. Using the Sharpe Ratio as a measure of risk/reward, mid-caps had a higher Sharpe Ratio than large and small caps over the one-, five-, 10-, 15-, 20-, 25- and 30-year time periods. (See Exhibit 4)
EXHIBIT 4: Sharpe Ratio Comparison of Select Russell Indices Since 1979
Source: Russell Family of Indexes, Fact Set, 12/31/10
Past performance is not indicative of future results.
Click here for index definitions and investment terms.
Equity securities (stocks) may be more volatile and carry more risk than other forms of investments, including investments in high grade fixed income securities. Mid and small capitalization funds typically carry additional risks since smaller companies generally have a higher risk of failure.
Indexes are unmanaged and investors cannot invest directly in an index.